Studying the relationship between corporate governance, financial management decisions and firm’s financial performance.

Abstract

Corporate governance is one of the critical issues that lead to improving the business environment. Corporate governance not only values firm managers interested in knowing the quality level and corporate governance structure and its adjustment with the best methods and regulations but also is attractive for participants in the market who are interested in knowing governance risk in firms. On the other hand, the major role of financial reporting is to transfer data to outsiders in an organization efficiently. Any business unit works within a field through which the result of performances could be studied and assessed and measured through different methods. Also, the main goal of most firms is to create value for shareholders and to maximize it by using managerial decisions. Methodology: The present study is going to investigate the relationship between corporate governance, financial management decisions, and the financial performance of firms. The statistical sample used in the present research includes 76 enlisted in the Tehran Stock Exchange during the time period between 2010 and 2014. The dependent variable in this research is firm performance. The independent variables whose effect on firm performance is going to be investigated include corporate governance elements (ownership percentage of institutional investors, ownership concentration, the board size, the proportion of not in charge board members), financial management decisions (over-investment, sub-optimal investment). Results: The intended data were collected and were categorized in an axel file as data references. Also testing the hypotheses was carried out by using multiple variable regressions based on pooled data techniques by using Eviews economic measurement software. Conclusion: Research findings showed that there has been a negative and meaningful relationship between ownership percentage of institutional investors and financial performance with a probability of %95. Also, there has not been a meaningful relationship between board size, the proportion of not in charge board members (independence of board), and financial performance. On the other hand, there has not been a meaningful relationship between over-investment and financial performance. But there has been a positive and meaningful relationship between sub-optimal investment and a firm’s financial performance.